Answers for exam paper - 2013\/14 Semester One Question One Whether Amenders has a claim against either Tony and\/or Bruce it is necessary to determine if

Answers for exam paper - 2013/14 Semester One Question One...

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2013/14 Semester One Question One Whether Amenders has a claim against either Tony and/or Bruce, it is necessary to determine if Tony and Bruce had breached their duties to Amenders as directors. Under S157 of the Companies Act, a director is “shall at all times act honestly and use reasonable diligence in the discharge of their duties” as directors. As part of their duty to act honestly, a director is required to act in the best interest of the company when exercising his powers as a director. This requires the director amongst other things to avoid a conflict of interest and avoid earning secret profits. A similar to duty to act in the interest of the company is also found under common law. This duty is imposed on the director as a fiduciary of the company and has a similar requirement to avoid conflict of interest and avoid earning secret profit. In the case of Tony, he had formed Ironmen. He is the sole shareholder and director of the Ironmen. Ironmen is also a company which directly competes with Amenders. Therefore Tony’s interest in Ironmen would be a clear a conflict of interest. The law on conflict of interest requires the director to avoid a situation where his personal interest may conflict with the interest of the company (Amenders). In the event there is a possible conflict of interest, he would be required to disclose his personal interest to the company and seek approval from the company. If the company gives their approval, there would be no liability. Tony however did not inform Amenders of his involvement in Ironmen. Tony also used his position as director of Amenders to enter into a contract with Ironmen to supply iron hinges. It can be assumed that the contract was beneficial to Ironmen and as a result, Ironmen was able to earn profits from the contract. In this regard, it is therefore possible that Tony had indirectly earned secret profits from the contract. Finally, Tony used his position as director of Amenders to persuade long-time customers of Amenders to use Ironmen’s services. This will directly affect Amenders since they will be losing long-time customers to Ironmen and Tony is taking up business opportunities for himself rather than Amenders. This would also clearly be a conflict of interest and a breach of his duty as director. (Canadian Aero Service V O’ Malley) Under common law, the director who benefited from a business opportunity made known by virtue of his position of director may also be made to account for the profits earned from the business opportunity. (IDC v Cooley) A breach of S157 would result in the director being personally liable to account for profits and to indemnify the company for any losses suffered by the company. In addition, the director would be committing an offence and is liable to be punished with a fine or imprisonment.
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